Comcast’s fight for the pipes of the Internet

FORTUNE — If it seems as if Comcast has acted arrogantly in addressing widespread complaints that it favors its own video streams on its Internet service over those of its competitors, it could be in part because the company so dominates the Internet-service business in the markets where it operates. And that’s a lot of markets.

Comcast’s (CMCSA) stock has risen by about 50% since last August, and more than 20% since the beginning of the year. It might not go much higher given how its P/E ratio (13.1) compares with those of its competitors; DirectTV’s (DTV) is 8.8. Given that it’s still integrating its purchase of NBCUniversal, Comcast’s performance is hard to criticize. Earlier this month, it reported a “stellar quarter,” according to Morningstar analyst Michael Hodel. Profits were up by nearly 30% over last year’s first quarter, to $1.22 billion. Revenue rose 23%, to 14.88 billion.

NBCU lost money in the first quarter, but that’s because Comcast is investing in new programming to catch up to its network rivals. Its core cable business is losing customers, but increases in broadband demand are making up for that. It’s even doing well in, of all things, residential landline telephone service.

MORE: Is Comcast violating net-neutrality rules?

But Internet access is the company’s biggest area of growth. Comcast lost 37,000 cable customers last quarter, which was more than expected, but that was offset by a 5.7% rise in broadband revenues. That might help explain why the company at first thought it could brush off the loud complaints about its video-streaming policies. Netflix CEO Reed Hastings posted a diatribe on Facebook last month noting that off all the various streaming services he watched through his Xbox — Netflix (NFLX), Hulu, HBOgo (TWX), and Xfinity — only Comcast’s Xfinity didn’t count against the 250-gigabyte monthly data cap Comcast was imposing on its customers. That seemed to violate at least the spirit of net-neutrality rules, and the FCC said it would look into the matter.

Comcast has since abandoned data caps temporarily, and is testing alternative methods of addressing so-called bandwidth hogs. But at first, the company reacted with what many described as supreme disingenuousness. It claimed that because its Xfinity for Microsoft’s (MSFT) Xbox service runs on a “private network” that is distinct from the Internet, net-neutrality rules (which demand that ISPs treat all data the same) didn’t apply. But in practice, the service is sent into customers’ homes via the same pipe as all other Internet traffic, so this didn’t fly with critics. Neither did Comcast vice president for video David Cohen’s dismissal of the criticism as mere “noise.”

Shortly after Cohen made his remarks in a conference call with reporters last week, the company announced it would test a new approach in a few markets. Rather than threatening to cut off service to customers who go over 250gb, it will charge them extra when they go over 300gb. Fewer than 1% of customers approach that level of usage, but Comcast says it’s a big problem because heavy bandwidth consumption by one user can slow service for his or her neighbors.

MORE: Netflix reputation ticks up slightly in consumer survey

Cable subscriptions still make up the vast majority of Comcast’s business, representing about two-thirds of its revenue and about 80% of its earnings. It’s losing cable customers, though not at a breathtaking rate (at least, not yet), and it’s working hard to position itself to take advantage of the burgeoning demand for streaming video. Even when customers don’t “cut the cord,” they are increasingly consuming video via means other than traditional cable, whether via devices like the Xbox and Wii, or on mobile devices and PCs.

As Comcast continues to strengthen its position in the streaming-video market and to invest more in programming for its television networks, it’s also shoring up its landline phone service. Incredibly, even though overall demand for landline phone service is falling as more people go all-mobile, Comcast has managed to actually grow its telephone service. In the markets where it’s offered, Xfinity Voice enjoys an 18% market penetration.

The company’s latest offering is Voice 2go, a mobile app that allows Xfinity Voice customers to circumvent their mobile providers to make calls and send texts on mobile phones using their home phone numbers. If used via a 3g or 4g wireless network, it will count against users’ data allotments like any other feature, but it won’t count against minutes. If used over a wi-fi network, the service is free.

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It’s conceivable that Voice 2go could allow some users to dispense with their mobile carriers entirely, though they would then be restricted to using their phones only in wi-fi hotspots. But either way, the service could potentially pose a threat to the immense profit margins that wireless carriers like Verizon (VZ) and AT&T (T) enjoy on SMS text-messaging services.

Those carriers, meanwhile, are trying to catch up with Comcast and other cable providers through their televisions services, like AT&T’s  U-verse and Verizon’s  FIOS. They’re investing heavily in building out those networks, but they “remain small players,” says Morningstar’s Hodel. For Comcast, he says, “the “biggest uncertainty” going forward is how viewing habits will change. The company still enjoys dominance in its markets, but that might not mean as much as geography becomes less of a factor and people get used to having “TV everywhere.”

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